State-owned electricity utility Eskom has at last awarded the long awaited 'mega' boiler and turbine contracts, worth a combined R33-billion, for its R78,6-billion Medupi coal-fired power station to be built near Lephalale, in the Limpopo province, between now and 2015.

The 4 800-MW baseload plant, made up of six 800-MW units, will be commissioned in phases with the first unit likely to go commercial in late 2011, or early 2012. It is the first baseload, coal-fired station to be built in South Africa in over 20 years and its delivery to schedule is viewed as critical given that Eskom is currently operating at an uncomfortably low reserve margin of well below 10%.

The larger R20-billion boiler contract has been awarded to a consortium comprising Hitachi Power Europe and Hitachi Power Africa, while the R13-billion contract for the six turbine power islands was awarded to Alstom.

The contracts were signed last week, and officially awarded at a function held at Eskom's head office, Megawatt Park, on Tuesday.

More than 50% of the combined value of the contracts would be procured locally, the utility said.

Eskom Enterprises MD and acting CEO Brian Dames said that the signing of the contracts marked a significant milestone in the company's capacity expansion programme and promised that the localisation commitments made within the contracts would be monitored and enforced.

"We are proud that South African suppliers will benefit and develop their skills base from the execution of these contracts."

"Based on the Medupi contract, Eskom is currently in negotiations with Alstom and Hitachi for turbines and boilers for its next coal-fired power station as part of its fleet strategy," Dames stated, referring to ‘Project Bravo', which is to be built near Emalahleni, in Mpumalanga, almost simultaneously with Medupi.

PROJECT BRAVO CONTRACTS TO BE SIGNED BEFORE MONTH'S END

He indicated that the Project Bravo contracts would be signed before the end of November, stressing that he anticipated receiving either the same, or an even better deal on the boiler and turbine aspects of that project, which would be more expensive due to the inclusion of additional air-quality safeguards.

There has previously been some anxiety about the fact that the boiler and turbine contracts were taking so long to conclude, with Eskom initially indicating that it planned to make an announcement in late September.

But given the size and complexity of the deal, which will span years, Eskom and the suppliers were keen to ensure that every possible angle and risk was in hand before putting pen to paper.

The boiler and turbine contracts combined are the largest that Eskom has ever signed in its 84-year history.

Medupi, which will be the first base-load station to be built in South Africa for more than two decades, will be the biggest dry-cooled power station in the world.

The project was originally scheduled to be operational in September 2010, but has been delayed by up to nine months, as a result of environmental challenges. The first unit was now scheduled for completion by late 2011, or early 2012, with the entire station completed by 2015.

25% MORE EFFICIENT

The supercritical design, a first for Eskom, with its higher efficiency, will result in better usage of both water and coal resources and improved environmental performance. In fact, Hitachi promises a 25% efficiency improvement on the current installed base, which it claims will also translated in a 25% coal and water saving.

Hitachi Power Europe COO Klaus-Dieter Rennert said that the company had committed to substantial investment in developing local engineering, manufacturing and artisan skills capacities.

"This will be our contribution to the overall sustained success of Eskom's capacity expansion programme," he said.

He also told Engineering News in an interview that there were possible major research and development spin-offs from the investment and that the group was already engaged with promising discussions with some local universities.

Rennert also indicated to Engineering News that the deal with Eskom was of both commerical and strategic importance for the company and its position within the South African power market. But he also hoped its increased domestic footprint would soon be expanded also include opportunities arising in the transport sector.

Alstom Power Systems president Philippe Joubert said that his company had geared its 5 000-person strong local unit towards delivering on the contract, despite its tight schedule.

He added that its engineering, project management and general labourforce was likely to swell by thousands as the contract evolved and especially if it were successful in securing other coal and possibly nuclear work from Eskom.

Putting the contract's importance into perspective, Joubert told Engineering News that the Medupi contract at €1,4-billion would make up about 10% of the group's global order book, and would grow further if it were successful on Project Bravo.

MANUFACTURING SPIN-OFF

Both Rennert and Joubert also stressed their commitment to ensuring material manufacturing spin-offs, which had been integral to the award and said there was a real opportunity to integrate the South African supplier community into their international supply chains just as the global power market was expanding strongly.

Dames confirmed that 'mega contracts', which comprise R33-billion of the project's entire R78,6-billion value, have also been tied to a 'localisation commitment' that could involve up to R1-billion in associated manufacturing investment flowing into the country.

Eskom has a stated ambition of maximising the local content of its capital programme, which currently stands at over R200-billion, but this could rise to more than R1-trillion between now and 2025, by which time it hoped to have doubled its installed generation base to nearly 80 000 MW.

The utility has also applied to participate under the so-called Competitive Supplier Development Programme (CSDP), which will allow it to pursue local content opportunities without the constraints associated with the National Industrial Participation Programme, or NIPP.

Currently, foreign suppliers make a 30% local-content commitment on every sale above $10-million. However, government had adapted the CSDP plan given new global dynamics, where power- and transport-equipment suppliers were enjoying new market strength and where the risks and costs associated with NIPP could simply be priced in. Further, Eskom managers and executives will be incentivised in a way that seeks to embed local content in their performance criteria.

Detailed plans for the building of local industrial capacity around the large procurement programmes of State-owned enterprises such as Eskom, should be in place by February.